* Construction equipment makers down on weak Caterpillar sales * GS Yuasa jumps on hopes Dreamliner battery failure issue will be resolved * Focus on U.S. summit, BOJ gov nomination * Pension fund report on investment in Japan stocks curb losses By Ayai Tomisawa TOKYO, Feb 21 (Reuters) - The Nikkei average fell on Thursday as exporters and construction equipment makers dropped, tugging the market slightly below a 52-month high tapped the previous day. By the midday break, the Nikkei dropped 0.8 percent to 11,376.28, tracking a weaker finish on Wall Street overnight. On Wednesday, the Nikkei rose as high as 11,510.52, also the highest level since late September 2008. Hiroichi Nishi, an assistant general manager at SMBC Nikko Securities, said there were more than 40,000 call option orders at the 11,500 mark for the past two days, suggesting that the index faces some resistance from the seller side close to that level. The broader Topix dropped 0.6 percent to 967.81. U.S. stocks fell the most in three months Wednesday after minutes from the Federal Reserve's most recent meeting suggested the central bank may slow or stop buying bonds sooner than expected. Construction equipment makers were weak. Komatsu Ltd shed 4.1 percent, the second-biggest percentage loss leader on the board, while Hitachi Construction Machinery Co Ltd dropped 3.0 percent after Caterpillar Inc's dealers reported slowing sales for the three-month period ended in January. Exporters were weak, with Panasonic Corp dropping 1.6 percent, Toshiba Corp shedding 1.7 percent and Fanuc Corp falling 2.7 percent. GS Yuasa Corp, which makes the batteries for Dreamliner, jumped 6.4 percent after a source told Reuters that a senior Boeing Co executive will meet with the head of the U.S. Federal Aviation Administration on Friday and present a series of measures aimed at preventing battery failures that grounded its 787 Dreamliner fleet for five weeks. A second source familiar with Boeing's plans told Reuters that the company also planned to increase the space between the cells in the lithium-ion batteries made by Japan's GS Yuasa as a potential fix.. PENSION FUND ALLOCATION CHANGE SUPPORT SENTIMENT Market players said that while the yen weakness has paused, some investors are buying shares on the dips based on individual news. Sentiment is also somewhat supported by a Nikkei report that Japan's biggest pension fund is considering increasing its exposure to Japanese stocks, they said. The Government Pension Investment Fund, which oversees more than 100 trillion yen in retirement savings, will consider raising its exposure to domestic stocks in its first portfolio reallocation in years, the Nikkei said. "This (Nikkei) report is suggesting that we will see further stock rises in the future, so the Japanese market probably won't face a significant sell-off even after it rose sharply," said Fujio Ando, an analyst at Chibagin Securities. The Nikkei has gained about 30 percent and the yen has declined some 15 percent against the dollar since mid-November driven by bold fiscal stimulus and monetary easing policies pursued by Prime Minister Shinzo Abe's new government to reignite the economy. Still, for this week, some analysts said the Nikkei is expected to trade in a fairly tight range. "The Nikkei pierced the psychological resistance level of 11,500, but trading volume has stayed low as investors want to stay on the sidelines before major events," said Yutaka Miura, a senior technical analyst at Mizuho Securities. Miura said investors were cautiously awaiting the outcome of a meeting in Washington on Friday at which Prime Minister Shinzo Abe and U.S. President Barack Obama are expected to discuss a range of issues including economic and trade matters. Additionally, the market may remain cautious before the nomination of a new BOJ governor, Miura said. The government has delayed nominating a governor by a week, fanning talk of friction between the prime minister and the finance minister over who should run the central bank and take aggressive action to revive the economy.